Is it worth setting up a buiness and selling my house to it.

kinger101

I think some of you are missing something here. Companies can get BTL mortgages too. But I think the OP needs to question whether the £130K equity is sufficient to obtain a mortgage on two properties. And whether their current home would actually get a decent yield.

Personally, if you were keeping the property for rental, I'd keep it outside of a company as;

(a) you'll not trigger SDLT, as there is no sale
(b) you'll get some additional reliefs (letting relief, deemed PPR) when you come to sell it that won't be available to companies (and there are also double taxation issues if you want out).
(c) the rental income you'll receive means your only likely to just be dipping your toe into the higher taxation rates that make rental property ownership as a company worthwhile.

agrinnall

kinger101 wrote: »

I think some of you are missing something here. Companies can get BTL mortgages too.

Which lenders will offer a BTL to a company that doesn't currently exist and as a result has no financial history? Any that would consider doing so would have sub-prime written all over them and are probably long gone.

martinsurrey

agrinnall wrote: »

Which lenders will offer a BTL to a company that doesn't currently exist and as a result has no financial history? Any that would consider doing so would have sub-prime written all over them and are probably long gone.

I know of a few, broker only, the directors would need to provide a personal guarantee, its not as abnormal as you seem to think, they underwrite it as if the director was taking the mortgage, but give it to the company.

The OP seems to have been pretty harshly done here.

Benefits of buying in a company.
1) Mortgage interest is 100% deductible against income for tax (for now)

2) Indexation allowance is available to companies, reducing the eventual gain for tax to be paid on when the property is sold

3) Tax flexibility - you can keep the cash in the company wrapper taxed at only 18-20% and draw it down when you need it, you can repay the director loan for the deposit equity tax free (from post tax company profit), added to the £5k dividend tax free allowance coming in and a couple could own a company, make £12k profit, pay £2k corp tax and withdraw it as a dividend without any additional tax.

4) With the new rules on mortgage interest, a fair few landord's will be sucked into £50k+ incomes, losing entitlement to child benifit, a company wrapper would avoid this.

Downsides
1) Administration - you'll need to prepare accounts, annual returns, corporation tax returns and all the other bits of paper a company needs, if you cant do them all yourself, you'll need to pay someone who can

2) Limited availability - while you can get a BTL through a corporate, its not a whole of market product.

3) Tax unknowns - they've come after sole trader BTL's. Who knows how long corporates have got.

OP, you need to speak to a broker who specialises in BTL's.

booksurr

martinsurrey wrote: »

I know of a few, broker only, the directors would need to provide a personal guarantee, its not as abnormal as you seem to think, they underwrite it as if the director was taking the mortgage, but give it to the company.

The OP seems to have been pretty harshly done here.

Benefits of buying in a company.
1) Mortgage interest is 100% deductible against income for tax (for now) No different to the situation with an individual taking either a BTL mortgage or withdrawing equity from their residential property

2) Indexation allowance is available to companies, reducing the eventual gain for tax to be paid on when the property is sold Companies do NOT pay CGT, if a company sells an asset it pays corporation tax, not CGT, on the gain.

3) Tax flexibility - you can keep the cash in the company wrapper taxed at only 18-20% and draw it down when you need it, you can repay the director loan for the deposit equity tax free (from post tax company profit), added to the £5k dividend tax free allowance coming in and a couple could own a company, make £12k profit, pay £2k corp tax and withdraw it as a dividend without any additional tax. correct, however putting an existing owned property into the company will incur significant one off costs

4) With the new rules on mortgage interest, a fair few landord's will be sucked into £50k+ incomes, losing entitlement to child benifit, a company wrapper would avoid this. true, but only applicable if no profit is withdrawn from the company, if it is not withdrawn then what is the objective of the investment and how will the funds eventually be extracted and what tax arrangements will be in place then?

Downsides
1) Administration - you'll need to prepare accounts, annual returns, corporation tax returns and all the other bits of paper a company needs, if you cant do them all yourself, you'll need to pay someone who can agreed, accounts and tax return for a company would be around £1,000 + from us

2) Limited availability - while you can get a BTL through a corporate, its not a whole of market product. agreed

3) Tax unknowns - they've come after sole trader BTL's. Who knows how long corporates have got.agreed

OP, you need to speak to a broker who specialises in BTL's.

as above, OP take proper advice ....

martinsurrey

booksurr wrote: »

1)No different to the situation with an individual taking either a BTL mortgage or withdrawing equity from their residential property

only for the next 2 years. then the restrictions come in, which will directly cost higher rate tax payers and push many basic rate tax payers into higher rate tax

booksurr wrote: »

2) Companies do not get the personal allowance and specifically in Op's context the company will not get private residence relief and letting relief both of which are worth much more than indexation on the current property

OP is buying a new property for PPR relief, they will be able to crystallise his old PPR relief on sale to the new company, I agree that an element of Letting relief will be lost.

However do not underestimate indexation allowance.

a house bought in 2000 for £100,000 and sold today for £200,000
1) as a sole trader higher rate tax payer you would pay £24,920 in capital gains tax, assuming no other gains in the year (so the full £11k allowance used)

2) a corporate would pay £9,080 in corporation tax, again, extracting that income is the next step, I personally would leave it invested and withdraw it once I retire, but using my £5000 tax free dividend allowance each year.

Without seeing the numbers we cant say how useful letting relief would be to the op, we need to work out his PPR claim as letting relief is limited to that, so if he bought the house recently for not much more than its worth now, he'll not get much, indexation is unlimited.

A very efficient solution would be to wait until the last minute before the mortgage relief rules came into effect and then transfer to the corporate, maximising the amount of PPR/letting relief without being subject to the new rules.

booksurr wrote: »

correct, however putting an existing owned property into the company will incur significant one off costs

as the house is £135k stamp duty will be minimal, as will search fees and legal fees, wont cost a huge amount more than a re-mortgage.

booksurr wrote: »

true, but only applicable if no profit is withdrawn from the company

the OP could tailor the dividends to the most tax efficient amount, and repay the directors loan account to make up any cash shortfalls they experience.

booksurr wrote: »

agreed, accounts and tax return for a company would be around £1,000 + from us

yeah, first year maybe, after its set up I would expect it to be a few £000 as long as the company owner can provide crystal clear information (so a complete set of records with support, fully spread sheeted).

I don't disagree with you, I'm just a bit more bullish on using every rule I can find, the OP definitely need pro help, but a corporate wrapper can be very advantageous in the long term.

kinger101

agrinnall wrote: »

Which lenders will offer a BTL to a company that doesn't currently exist and as a result has no financial history? Any that would consider doing so would have sub-prime written all over them and are probably long gone.

I don't know specifically, but they do exist. It's not sub-prime. Anything but. BTL mortgages typically have at least 25% equity. It's a mortgage, so it's not as if the company doesn't have assets (as collateral).

http://www.mortgagesforbusiness.co.uk/products/limited-company-rates/

Referring back to booksurr's and martinsurrey's coversation, there are pros and cons (and uncertainities surrounding the future taxation law). In my opinion though, unless you're a higher rate taxpayer who knows they're in it for the long game, the letting relief, deemed PPR and CGT annual exemption are probably going to be more valuable than indexation allowance in the short to medium term.

But the OP needs to think what there plans are before deciding which (if any) route to go down.

booksurr

martinsurrey wrote: »

OP is buying a new property for PPR relief, they will be able to crystallise his old PPR relief on sale to the new company, I agree that an element of Letting relief will be lost.

However do not underestimate indexation allowance.

a house bought in 2000 for £100,000 and sold today for £200,000
1) as a sole trader higher rate tax payer you would pay £24,920 in capital gains tax, assuming no other gains in the year (so the full £11k allowance used)

I was having an off day today, companies do not pay CGT although you are right that they can get indexation allowances so the viability of company v individual property holding comes down to second guessing future tax rates and when/how the money is to be extracted from the investment n

a company is taxable to corporation tax not CGT on the gains when it sells company assets . I acknowledge that Corp Tax rates are currently lower than the CGT rate
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/423642/2014-15-cg-companies.pdf

kinger101

booksurr wrote: »

I was having an off day today, companies do not pay CGT although you are right that they can get indexation allowances so the viability of company v individual property holding comes down to second guessing future tax rates and when/how the money is to be extracted from the investment n

a company is taxable to corporation tax not CGT on the gains when it sells company assets . I acknowledge that Corp Tax rates are currently lower than the CGT rate
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/423642/2014-15-cg-companies.pdf

To be fair, I don't think martin has stated companies pay CGT. Just tax on chargeable gains. This doesn't automatically imply CGT; as I'm sure you're aware, the legislation covering this for both companies (CT) and individuals (CGT) is the Taxation of Chargeable Gains Act 1992.